EXIT PLANNING Archives - Centura Wealth Advisory

Business Signing a Contract Buy - sell house.

Selling Your Business: Navigating Taxes and What to do Next

During the process of selling a business, owners have many obstacles to navigate: processes, taxes, and, of course, deciding what to do next.

In this article, we’ll discuss the different types of taxes a business owner may encounter when selling their business, as well as options for how to invest the proceeds.

How to Navigate Taxes While Selling Your Business

In the process of selling a business, taxes tend to be one of the most significant aspects to consider.

The IRS separates taxable income into two main categories: “ordinary income” and “realized capital gain.”

Capital Gains Tax: What is it and How Does it Work?

In simple terms, a capital gain is a profit gained from an investment. When you sell a business, the capital gain is the difference between the original cost and the sale price.

Taxes on capital gains taxes come into play when you sell the business because capital assets are being sold. Capital gains tax is charged on all capital gains. A net long-term capital gain is usually no higher than 15% for most taxpayers, though there are some exceptions for high earners.

What is Ordinary Income?

Ordinary income includes earned wages, rental income, and interest income on loans, CDs, and bonds (except for municipal bonds). For tax purposes, short-term capital gains are treated as ordinary income on assets held for one year or less.

How does this relate to selling your business? Gains on some of the assets being transferred may have to be taxed at ordinary income tax rates rather than at the 15 percent maximum long-term capital gains tax rate.

Let’s Talk Depreciation Recapture

Depreciation recapture is “the gain realized by the sale of depreciable capital property that must be reported as ordinary income for tax purposes. Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis. The difference between these figures is thus “recaptured” by reporting it as ordinary income.”

What does this mean for business owners? The IRS can collect taxes on any profitable sale of an asset that the taxpayer had used to previously offset taxable income.

What to do After Selling Your Business

Business owners may not be sure where to start when it comes to investing the proceeds of the sale of their company. During this time, business owners may want to utilize the help of professional advisors – such as our team as Centura Wealth Advisory – to take a fresh approach curated to the current conditions of the market as well as the goals of the client.

Let’s review some investment options business owners can consider after selling their business.

Structured Notes

A structured note is “a debt obligation that also contains an embedded derivative component that adjusts the security’s risk-return profile. The return performance of a structured note will track both the underlying debt obligation and the derivative embedded within it.”

Structured notes, written by high credited banks, are customizable and well-suited for a rising interest rate environment and can help investors maintain returns. Due to these benefits, more individuals and families are investing using structured notes.

Listen to an Example: Our Client, Doug Pate

In Episode 62 of the Live Life Liberated podcast, Kyle Malmstrom interviews Doug Pate, a client of Centura Wealth Advisory (Centura), who recently sold his business, International Surf Ventures Inc., after growing it for 17 years.

Doug Pate co-founded ISLE with his best friend, Marc Miller. Doug and Marc share a lifelong passion for the ocean and the sports that surround it. In their first four years of business, they sold surfboards online. At the time, there was no direct-to-consumer surfboard company, and by default, they became the industry’s pioneers. In 2008, they shifted their focus from surfboards to stand-up paddle boards as a way to help more people get on the water across the country.

In this podcast, Doug discusses:

His personal experience of navigating a business exit
How the team at Centura guides him through investing using structured notes
How CLATs helped him save seven figures in taxes and achieve his charitable goals
Why wealth protection is as important as growing your wealth
Centura’s involvement in his wealth management (including alternative investments)
And more

Selling Your Business?

Centura Wealth can help you navigate the process with ease. Learn how to prepare to sell your business here.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.

October 21, 2022

EXIT PLANNING, NEWS

Who Am I Missing on My Team to Sell My Business?

As you start thinking about the process of selling your business, compare this process to a game of baseball. Where do all pick-up baseball games start? With picking your team.

So, captain, who’s your first pick?

While captains are typically great players also, they may not have the expertise needed to fill the roster with the best possible team. You’ve built your business to what it is today, and that’s exactly where your expertise lies. So, how would you know how to assemble the correct team to help sell your business?

The short answer: You don’t have to. That’s where the coach comes in.

By coach, we’re referring to your wealth advisor. At Centura, we help facilitate the sale of your business by providing forensic analysis of your current professional roster and recruiting heavy hitters when necessary.

So, what do we look for when recruiting for your business’ sales team?

The Team You Need to Sell Your Business

Although there are various other positions you might need to fill depending on your unique business, here are five non-negotiable team players that can help sell your business.

Accountant/CPA – The Catcher

The right accountant or CPA acts as your catcher because they can help recommend the best course of action through an analysis of your business.

Depending on the complexity of the sale, a CPA who has specific experience structuring a business for the sale can act more as a consultant during the selling process.

What is the Accountant’s Role On the Team?

Your accountant or CPA plays an integral role in the sale of your business. They are involved in the pricing, due diligence, and negotiation process of the sale. The accountant will need to review your records and advise you on the best structure for your business sale while considering one of the biggest challenges in the sale of your business: taxes.

Appraiser – The Shortstop

People say that the secret to building a successful baseball team is to be strong up the middle. Here’s where your shortstop, or appraiser, comes in.

What is the Appraiser’s Role On the Team?

The appraiser’s role on the team is to evaluate your business’ value. Does your business involve intellectual property, proprietary processes, brand awareness, and other assets that can be difficult to put a monetary value on?

If so, it may be helpful to enlist the help of an appraiser. This professional thoroughly understands your business and what other, similar businesses are selling for. Their main goal is to set you up for success with the appraisal.

Attorney – The Umpire

Like an umpire, the attorney ensures the rules are followed; the attorney is responsible for making sure you can walk away without any potential liabilities and with the money you intended to collect.

What is the Attorney’s Role On the Team?

Your attorney plays a key role in preparing to sell your business, including a guiding hand in both:

The due diligence process
And, the negotiation process

Your attorney oversees the entire process and helps make sure your business is compliant throughout the sale.

Business Broker – Long-Relief Pitcher

Your business broker helps call the shots during the sale of your business. They are involved in the pricing, marketing, due diligence, negotiation, and closing process of the sale.

What is the Business Broker’s Role On the Team?

Every decision that is made is run through the business broker to ensure it is best for your business. Business brokers are in it for the long haul and have the stamina to last throughout the entire sales process.

Wealth Advisor – The Coach

Your wealth advisor helps see the game from a high level, making sure your team plays as effectively as possible. Where do you need to fill in the gaps to get a better business valuation? What players do you need to ‘win’ the sale?

What is the Wealth Advisor’s Role On the Team?

If you’ve ever been a part of a sports team, you know that the coach has the ability to make an exponential impact on the game. At Centura, our goal is to do just that; to positively impact your selling experience by understanding what will make you most successful. How exactly do we provide this exponential value to our clients? Read on to understand our process and see how our advisors bring value and expertise to every encounter.

October 13, 2022

EXIT PLANNING, NEWS

Four Methods for a Successful Succession Planning Strategy

The general lifecycle of a business typically follows a few different stages. These stages include start-up, development and establishment, and finally maturity. As a business owner, once you’ve reached the maturity stage of your business, you are likely considering what the future of your company holds.

What will happen to your company when you retire? While planning to exit your business can be an emotional decision, it is also essential to the greater success of your business. What we have found, is that most business owners prefer to procrastinate on putting together a proper exit plan, which could end up being the reason your company does not succeed beyond your leadership.

Ideally, business owners start preparing their succession plan three to five years prior to their exit. This plan is in place to protect the company when the executive team is no longer available to serve their duties. When succession planning is rushed, hiring mistakes are more likely to occur, and the future of your business could be at stake.

In an effort to help you along this planning journey, here are a few tips to guide a successful succession planning process.

Assess Core Competencies in Alignment with your Business’ Strategy

First, take a look at your organization and work to identify the significant business challenges you may face in the next one to five years. Then, you can connect the positions that will lead to business continuity in the long run. In doing this, you’ll likely find the core competencies, skills, and knowledge that are critical to the success of your business.

Evaluate High Potential Employees

Once you have identified the positions and skills needed to continue your business, you can begin to consider who may take your place and the place of other leadership positions within your organization.

During this process, it’s important to account for your overall business strategy. Is the person you’re considering the right person to execute that strategy? What skills does this person need to drive this strategy forward?

Clear Communication with Stakeholders

As you go through the process of finding your successor, it’s important to include other key stakeholders within the business. Involving senior leadership and other members of the executive team to weigh in on whom they think is most qualified to take on this new role is essential to gaining their buy-in when the transition occurs.

Training Your Successor

Now, it’s time to communicate with your successor. Training your successor to take your place is of the most important steps in this process. Make sure they have enough time working with you to understand how the business operates, and how to grow the business from a position of strength.

Be sure to spend time with them during this entire process. Help them make decisions with your guidance, show them alternatives that they might not think of due to experience, and help them understand the risks associated with their decisions.

To go a step further, before you decide to leave your business, craft a strategic plan with one another. This helps ensure your successor is prepared and bought into creating a successful future for your business.

Potential Obstacles

Lastly, there are a few potential obstacles that you may run into during this process. These obstacles typically include timing, resistance to change, and lack of company support.

Timing

The entire succession planning process can be a time-consuming one. The time it takes to assess, evaluate, and develop your successor is not something to lose sight of. This is why it is typically recommended to start your succession planning at least three to five years in advance.

Not taking the time to develop this process can be detrimental to your company’s success. As we mentioned above, it usually leads to hiring mistakes, but it also has a large impact on your organization as a whole. If your successor is unprepared to take on this new role, your business will not be able to reach its full potential.

Resistance to Change

One of the reasons it is recommended to take three to five years to a succession plan is the impact it has on your people. Many people are resistant to change, especially as it relates to their careers.

Preparing your successor over time, allows the rest of your organization to familiarize themselves with the new leadership style they will be experiencing. Which leads to greater buy-in, and an easier transition overall.

Lack of Support

Similar to the point above, during any business transition, you will likely have naysayers, skeptics, and resistance. Most of these issues stem from the emotions that arise when people are concerned that their job is at risk. A simple way to mitigate this issue is to communicate as frequently and transparently as possible.

Aside from succession planning, there are other factors that go into exiting your business. For you, that may mean selling your business. How can you begin to prepare to sell your business a few years down the line? Take a look at one of our recent articles to get you started.

May 2, 2022

EXIT PLANNING, NEWS

Keys to a Successful M&A

A merger or acquisition (M&A) can have a huge impact on your business, regardless of if you are the seller or the buyer. Mergers and acquisitions can offer business owners the opportunity to create more value for their business, expanding beyond what they could do alone. The process of merging or acquiring a company, however, can be a lengthy, complicated process.

Why Would You Pursue an M&A Transaction?

First, let’s discuss why you would decide to pursue an M&A transaction. Typically, the objective behind a merger and acquisition is clear from the start.

Some of the most common reasons that business owners pursue an M&A transaction include to:

Improve company performance
Improve a product’s time to market
Reduce excess production capacity
Acquire a company’s technology, products, expertise, or resources
Lower operating costs by making use of economies of scale

Sometimes, an M&A transaction occurs as a result of seeing potential in a younger company.

Regardless of why you’re considering undergoing a merger or acquisition, it’s important for the success of the transaction that both parties stand to benefit from the deal.

What Makes an M&A Transaction Successful?

According to Harvard Business Review, about 70 to 90% of mergers and acquisitions fail. This considered, how can you make sure your business is a part of the slim 10 to 30% of companies that succeed in this stage of your business?

Mutual Benefit for Both Parties

As we stated above, part of a successful M&A transaction involves a mutually beneficial deal. Both parties should experience some kind of gain, even if that means simply avoiding a potentially negative alternative.

A mutual benefit is essential to your M&A success, as you need to be sure both parties are fully committed to the deal. If one company stands to gain a significantly greater benefit, it may be a sign that the other party may not be as committed to the transaction–which could lead to the M&A’s demise.

Vision Alignment

Another element that leads to success in a merger or acquisition is a clear, shared vision of the future for both companies. For both the buyer and the seller, what does the company look like post-merger or post-acquisition? Having a clear understanding of what this looks like will allow for a smoother transition.

Uncover Your Plan B

In any plan where negotiations between two or more parties are involved, there’s a greater chance of failure. If negotiations stall, hit a dead end, or combust, what happens to your company? Set a plan B before this situation occurs, so you can confidently move into negotiations.

Set a Clear Timeline

Lastly, be sure to set milestones and deadlines throughout your M&A transaction. M&A transactions have a reputation of dragging on for months, even years at times. Having a set timeline with clear milestones and goals is essential to keeping the deal on track.

Why Do Some Merger and Acquisitions Transactions Fail?

As we mentioned above, the majority of mergers and acquisitions fail. But how is this failure defined? A merger or acquisition failure is defined by whether or not the transaction met the original objective of the transaction.

With that being said, there are a few things to look out for before you undergo this process:

Culture Fit

One of the primary reasons that M&A transactions fail is due to the cultures of the two companies coming together. If the two cultures clash and leadership is unprepared, you may run into quite a few issues. This clash can carry over to your customers, and your original company can lose what made it successful in the first place.

Lack of Due Diligence

Performing an in-depth due diligence process prior to your M&A transaction is essential to the success of your deal. If you have an insufficient understanding of the other company’s financials, processes, and overall business, you may be blindsided post-transaction.

Integration Planning

The integration process after a merger or acquisition occurs can be lengthy. This integration comes into play in every aspect of the business, but buyers should pay specific attention to the technology integration, as it tends to be the most complicated and time-consuming.

Overly Optimistic Forecasting

Buyers are typically overly optimistic regarding the savings they will experience from acquiring a business. It can be difficult to predict operational and manufacturing costs, as there are often unforeseen complications that arise.

Now that you understand what it takes to experience a successful M&A transaction, you can enter the planning stage. Whether you choose to pursue a merger or acquisition or a different avenue for exiting your business, take a look at this article to start preparing to sell your business.

April 9, 2022

ESTATE PLANNING, EXIT PLANNING, NEWS

Exit Planning vs Succession Planning vs Legacy Planning: What’s the difference?

The terms succession planning and exit planning are sometimes used interchangeably. At the same time, legacy planning is a part of succession and exit planning strategies but can be addressed on its own for those high-net-worth individuals (HNWIs) who are not also business owners. While succession, legacy, and exit plans require care and attention, there are some important differences.

Both succession planning and exit planning fall under the umbrella of Business Transition Planning.

Business Transition Planning is the umbrella term for any strategy focused on creating, maximizing, and preserving the value of a business as it prepares for and experiences transition.

A successful strategic business transition plan targets three crucial areas of need:

Maximize the value of the business while the business owner is still in place
Prepare the business owner for the transition from tax strategies to life plans
Optimize the organization structurally and culturally to weather the transition

What Makes Up a Successful Exit Plan?

Exit planning takes a comprehensive look at the structures, financial, cultural, and legal that make a successful exit possible. It is the strategic process employed when a business is going to be sold or is going to merge with a third party. Because an unknown element will impact the business valuation, its leadership, its culture, and its productivity, the process of setting up a successful exit plan can take between 3- 5 years.

Some of the essential elements of a successful exit plan are:

Identify the Owner’s Objectives: financial goals, timing details, and people-focused objectives.
Understand the Business’ Value: Intellectual Property (IP), revenue, market conditions, multiples, projections, bubbles, and upcoming industry trends.
Plan for Leadership Succession: Identifying the key people who will remain with the business through the transition to ensure the business retains its value and incentivize them to weather the transition.
Tax Planning: Implementing tax strategies to reduce the tax burden of a multi-million dollar transaction requires months if not years of planning and implementation of tools from Defined Benefit plans to life insurance tools to philanthropic bequests and more…
Financial and Legal Structuring: Ensuring that the company’s financials accurately reflect the business’ profitability will protect the seller from future exposure to litigation. Simultaneously, it increases the value of the business while legal protection and well-structured contracts with employees, vendors, and clients will help retain the value of the business.

Who Should Have a Succession Plan?

Succession Planning is focused primarily on the transfer of leadership and financial control of the business to a family member or key employee.

When a succession plan is put in place early enough, there is an opportunity for the successor to develop their skills and experience in order to step into the leadership role and make a smooth and successful transition. For this reason, a successful succession plan can be built into the business from the beginning or, at least be implemented well before discussions begin surrounding the business owner’s transition out of a decision-making role.

When the succession plan involves an ESOP or the transfer to a key person inside the organization, there are components that need to be addressed:

Legal details involving representations & warranties
A transitional period during which the owner will remain in an advisory capacity
The structure of the acquisition of the company from a financial standpoint

Generational succession requires identifying issues of control, family structure, rivalries, and the future of the company that should be addressed from a financial and cultural standpoint.

How Does a Legacy Plan Play into Exit and Succession Planning?

Legacy planning can also play a part in exit planning and succession planning. While exit and succession planning are both focused on the business owner’s departure from their role as chief decision-maker, legacy planning is focused on the impact of how:

Increased time may have on the owner’s life and
Increased funds may have on the community around them.

Integrating elements of legacy planning into an exit or succession plan may involve bequests to philanthropies to both offset taxes and leave a permanent positive impact behind. It may be as straightforward as the choice to remain on a board in an advisory capacity in a boardroom named for you or as complex as a trust that funds the education or ventures of generations to come.

For business owners who are HNWIs, the complexities around major money-in-motion events are not to be understated. With so much on the line, it is essential to get the right advice.

Trusted wealth advisor relationships, family back offices with lawyers who know your business structures, and reliable advisors to your family as a whole – not just to you the business owner – are important as you start to plan for an exit or succession in your business. Putting a plan in place does not mean that you have to stay on that timeline.

At Centura Wealth we help set up exit planning, and tax-advantaged strategies for major wealth transfer events and then have the flexibility to pivot when clients’ plans change. Our team focuses on unique strategic plans that are customized to your family’s needs and objectives. Reach out to learn more about how we help our clients be ready for what’s next.

For more information on generational wealth and how to transform your strategy to make it last, read our article here.

April 4, 2022

estate agent giving house keys to woman and sign agreement in office

EXIT PLANNING, NEWS

ESOPs vs. Third Party Sale – What’s the difference?

A commonly asked question that Centura Wealth Advisory receives is, “What is the difference between ESOPs and a sale of my company?”

The advantages of choosing to implement Employee Stock Ownership (ESOP) as a part of your exit plan, vs. selling your company to an outside entity depends on your specific situation.

ESOPs are available to C Corps and S Corps as a tax mitigation strategy to offset capital gains taxes. For those business owners who want to sell a part of their stake in a company, or in the case of one partner wanting to exit and the other(s) wanting to remain in control of the business when those remaining partners lack the desire to buy out the departing partner, ESOPs are a viable option.

Structuring your ESOPs sale is complex and outside the scope of this article, however, as a high-level overview of the choice between a straight third party sale to a competitor or venture capital/private equity sale let’s review the benefits of each type of exit.

What is an ESOP?

The National Center for Employee Ownership (NCEO) states that an ESOP provides “A variety of significant tax benefits for companies and their owners. ESOP rules are designed to assure the plans benefit employees fairly and broadly.”

ESOPs are Employee Stock Ownership Plans, as the name suggests, selling stock in your company to those employees who are already part of the organization. As a business owner, you may wonder how you can protect loyal employees after an exit. Certainly, a third-party sale leaves those who may have helped build your company alongside you vulnerable to termination or worse, the dissolution of their leadership role or disintegration of the company culture they helped build.

An ESOP not only protects loyal employees from termination but also gives them ownership of up to 100% of the company. From a tax perspective, ESOPs are valuable in that your seller notes earn on average 13% – 20% in contrast to the 6% average rate of return for stock market assets. When a business owner or owners sell to their employees, the transaction is tax-free. Here is an example of the structure of a cash sale vs ESOPS from The Menke Group:

“Let’s assume that the value of your company is $10 million and you decide to sell it to a third party for all cash. After paying a combined federal and state capital gains tax of say 30% (assuming a zero basis), you would be left with net proceeds of $7 million, which you could reinvest in […] public stocks that historically earn 6% on the average over the long term.

In comparison, if you are a C corp. […] you could sell your stock to an ESOP and receive $10 million in seller notes, tax-free, and your seller notes could earn an all-in rate of return ranging from 13% to 20% or more. Similarly, if you are a S corp. or switch to S corp. status, you could sell your stock to an ESOP in exchange for $10 million in seller notes, pay the capital gains tax on the installment sale basis and earn an all-in rate of return on your seller notes ranging from 13% to 20% or more.”

NCEO states that “ESOPS are most commonly used to provide a market for the shares of departing owners of successful closely-held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars.”

Selling your business to a Third Party

For larger businesses (above $10 million in sale price) selling to a third party may be your best option. Larger sales often require the deep pockets of Private Equity PE) funds. Typically, larger companies have less concern for the future of their key employees. This may be because the owners have stepped away from the careful management of running of the business or because the hierarchy has become so stable that a purchasing entity would not touch the existing structure for fear of damaging the profitability of the acquired company.

The typical PE sale will give the seller a large portion of cash that they can allocate to whatever they wish. For example, they can give it to their family, buy a property, or invest as they wish without the long-term funds that accompany an ESOP. Being acquired by PE almost always means the owner stays on to ease the transition with a decreasing amount of influence over the subsequent 1-3 years.

Selling to a competitor can mean a lower sale price but likely the retention of your service offerings and potentially the merging of your company culture into the new entity.

From a tax perspective, selling to a third party means you will have to pay capital gains taxes on the full sale price of your company. For some sellers, this is a necessary evil and there are ways to offset those capital gains taxes such as:

An Installment Sales Agreement. An Installment sales agreement allows a buyer to pay a part of the sale price annually allowing them to adjust their annual income to maximize tax savings.
An Asset Sale keeps the company’s ownership in the hands of the seller to earn on the various components of the business as opposed to the entire business. In an asset sale, the seller may be able to write off the purchase more effectively though it leaves vulnerabilities for the seller.

The Pros and Cons of ESOP

Pros

Some of the main ESOPs uses are:

“To buy the shares of a departing owner. Owners of privately held companies can use an ESOP to create a ready market for their shares. Under this approach, the company can make tax-deductible cash contributions to the ESOP to buy out an owner’s shares, or it can have the ESOP borrow money to buy the shares.
To borrow money at a lower after-tax cost. ESOPs are unique among benefit plans in their ability to borrow money.
To create an additional employee benefit. A company can simply issue new or treasury shares to an ESOP, deducting their value (for up to 25% of covered pay) from taxable income.
Major tax benefits. Some of these tax benefits include: contributions of stock are tax-deductible, cash contributions are tax-deductible, contributions used to repay a loan the ESOP takes out to buy company shares are tax-deductible, and sellers in a C corporation can get a tax deferral.”

Cons

The potential downside of ESOPs from NCEO include:

The law does not allow ESOPs to be used in partnerships or in most professional corporations.
ESOPs can be used in S corporations, but do not qualify for rollover treatment.
Private companies must repurchase shares of departing employees, which can become a major expense.
The cost of setting up an ESOP is substantial—$40,000 for the simplest plans.
Any time new shares are issued, the stock of existing owners is diluted.

Which is best for you?

ESOPS are complex structures as are sales of businesses to third-party buyers. While we can’t tell you which is right for you, the important aspect of a well-planned exit is a holistic view of the company, the owners’ wishes, and the timetable. As you plan for your company exit, please reach out to one of our trusted advisors to learn more about structuring an exit at 5 years, 3 years, and into the final 6 months before your sale.

As you look to plan for the future of both your personal finances and business finances, it’s important to understand what kind of financial assistance you may need. Understand the difference between a wealth manager and a financial advisor and which role is right for you in this blog.

November 28, 2021

Men and women negotiate to congratulate a successful business ,Shaking hands concept.

EXIT PLANNING, NEWS

How Do I Prepare to Sell My Business?

So… you want to sell your business. You’re not alone in the crazy market right now.

While there are many risks to owning a business, there are many reasons why you might be considering selling. Whether you are retiring, moving, or seeking new opportunities, here are some steps you can take to make this process as easy as possible.

Organize

Depending on how long your business has been in operation, there is a lot to organize. The paperwork is looming, but there are always steps you can take to organize. In general, financial planning is always a great goal to have as a business owner.

Some documents to gather and organize include:

Tax returns
Three years worth of profit and loss (P&L) statements and balance sheets
Copy of current lease
An updated list of everything that will be sold from business
Contact and clients list
Sales transactions
A summary of monthly sales

After organizing these financial documents, the next step is to review them with your accountant.

Engage with the Professionals

Centura Wealth can help you through this process, and keep your priorities and goals at the forefront of selling your business. Mark Morris speaks to the importance of On the “Live Life Liberated” podcast by the Centura Wealth team. The podcast follows the one idea of minimizing your taxes — through the ING trust. Mark Morris highlights the following subjects for anyone looking to sell their business:

The major hurdles that the ING strategy helps you overcome
What the new California legislative proposal entails — and its implications, if it’s successfully passed
Why Mark strongly recommends that the sale of the business happens this year for optimal results, but options if it doesn’t
How to take advantage of the ING trust even if you don’t yet have a buyer for your business

Click here to learn more about the ING trust from a professional’s point of view!

Benefits

Besides making sure your business looks the best it can, there are various strategies you can follow to make smart decisions, including defined Benefit Plans (DB) and Defined Contribution Plans (DC).

Defined Benefit Plan

A Defined Benefit Plan (DB) is an “employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors,” according to Investopedia. These factors can include the length of employment and salary history.

With a DB plan, the general rule of thumb is that an employee cannot take out funds from their 401(k) plan.

Defined Contribution Plans

A Defined Contribution Plan (DC) on the other hand is, “a retirement plan that is typically tax-deferred like a 401(k) or a 403(b), in which employees contribute a fixed amount or a percentage of their paychecks to an account that is intended to fund their retirements,” according to Investopedia.

With a DC plan, participation by employees is voluntary.

Find a Trustworthy Buyer

Finding a buyer can be a lengthy process, but it’s worth waiting for the right fit for multiple reasons. Here are a couple of tips to be aware of when looking for a buyer:

Have multiple options as deals fall through all the time
Allow cushion room for negotiation
Keep your values top of mind—does this buyer follow them?
Keep potential buyers updated to help build trusty relationships
It never hurts to network

Communicate with Employees

Throughout the selling process, remember to keep your employees engaged and focused. If employees are happy in their positions, the value of your business grows.

Consider their perspective as an employee throughout the selling process. Telling them too early could cause confusion. Telling them too late can be offensive to the work they are doing. Timing is everything.

One of the key elements of liberating your wealth is planning in a way that unpacks your family’s values and dreams, following an overall purpose. This is a great perspective to have going forward after having a conversation with your parents.

For those who are interested in liberating their own wealth, please contact us at Centura Wealth Advisory today to see how we might partner!

Our process does not discriminate between uniqueness versus common and therefore is well-adjusted to serve our audience. Just as important is our passion for finding and solving complex problems.

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.

July 31, 2021